Kura Oncology (NASDAQ:KURA) Has Debt But No Earnings; Should You Worry?

David Iben put it well when he said, 'Volatility is not a risk we care about. What we care about is avoiding the permanent loss of capital.' It's only natural to consider a company's balance sheet when you examine how risky it is, since debt is often involved when a business collapses. Importantly, Kura Oncology, Inc. (NASDAQ:KURA) does carry debt. But should shareholders be worried about its use of debt?

When Is Debt A Problem?

Debt and other liabilities become risky for a business when it cannot easily fulfill those obligations, either with free cash flow or by raising capital at an attractive price. If things get really bad, the lenders can take control of the business. While that is not too common, we often do see indebted companies permanently diluting shareholders because lenders force them to raise capital at a distressed price. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

Check out our latest analysis for Kura Oncology

How Much Debt Does Kura Oncology Carry?

The chart below, which you can click on for greater detail, shows that Kura Oncology had US$9.42m in debt in June 2024; about the same as the year before. But on the other hand it also has US$491.5m in cash, leading to a US$482.1m net cash position.

How Healthy Is Kura Oncology's Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Kura Oncology had liabilities of US$33.5m due within 12 months and liabilities of US$15.6m due beyond that. Offsetting this, it had US$491.5m in cash and US$4.70m in receivables that were due within 12 months. So it can boast US$447.2m more liquid assets than total liabilities.

This excess liquidity is a great indication that Kura Oncology's balance sheet is almost as strong as Fort Knox. On this view, lenders should feel as safe as the beloved of a black-belt karate master. Simply put, the fact that Kura Oncology has more cash than debt is arguably a good indication that it can manage its debt safely. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Kura Oncology's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Given its lack of meaningful operating revenue, Kura Oncology shareholders no doubt hope it can fund itself until it has a profitable product.

So How Risky Is Kura Oncology?

By their very nature companies that are losing money are more risky than those with a long history of profitability. And the fact is that over the last twelve months Kura Oncology lost money at the earnings before interest and tax (EBIT) line. And over the same period it saw negative free cash outflow of US$155m and booked a US$182m accounting loss. But the saving grace is the US$482.1m on the balance sheet. That kitty means the company can keep spending for growth for at least two years, at current rates. Even though its balance sheet seems sufficiently liquid, debt always makes us a little nervous if a company doesn't produce free cash flow regularly. When analysing debt levels, the balance sheet is the obvious place to start. However, not all investment risk resides within the balance sheet - far from it. For example, we've discovered 3 warning signs for Kura Oncology (1 is significant!) that you should be aware of before investing here.

Of course, if you're the type of investor who prefers buying stocks without the burden of debt, then don't hesitate to discover our exclusive list of net cash growth stocks, today.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.